Decision details

The Financial Impact of the Inability to Sell Recycling Materials in the Chinese Market

Is Key decision?: Yes

Is subject to call in?: Yes


To consider options arising from the Chinese Government’s decision to restrict imports from UK recycling processing plants.


The Environment Portfolio Holder presented a report on the financial impact of the inability to sell recycling materials in the Chinese market.


The Portfolio Holder reminded the Cabinet that, at its meeting on 10 April 2018, it had considered a report setting out the difficulties arising from the Chinese Government’s decision to ban the import of paper produced by Material Recycling Facilities (MRF) in the United Kingdom. This had resulted in excess paper in the reprocessing market, which in turn had led to a major drop in its resale value, and, as it was a buyer’s market, there was an increased focus on quality. Biffa had made significant capital investment in improving their Edmonton MRF, approximately £4.6million, where the recycling materials from the District were processed. Biffa had claimed that the capital and ongoing operational costs amount to £133,680 per annum attributable to the processing costs of the Council’s recyclate. In addition, Biffa had asked for an additional £39,000 in relation to historical errors in the way Recycling Unit Index Rate (RIUR) was calculated.


The Portfolio Holder explained that the Council could reject all of Biffa’s requests for making a contribution towards these costs. However, there were two risks with this approach:


            (i)         Biffa might elect to cease processing materials and recycling materials             could end up in landfill; and


            (ii)        this would put further significant financial pressure on the Waste             Management contract.


The Portfolio Holder explained that specialist advice was obtained by the Council from WYG Environmental Limited, who had considered the options and provided market intelligence to enable Officers to recommend a settlement offer to Biffa. Although the capital investment would benefit the MRF for longer, it was not reasonable for the Council to pay for more than the first ten years of contract. Some of the costs were related to contamination found in the recycling materials, as inadvertently some non-recycling materials had found their way into recycling, and in arriving at the settlement figure the Council had factored in contamination levels.


The Portfolio Holder stated that a settlement of £500,000 split into a one off capital contribution of £200,000 and six yearly payments of £50,000 was considered a fair and reasonable commercial offer; particularly if it was linked to the mitigation of risks on the future market for commodity prices. It was felt that these steps were necessary to guarantee the future stability of the current contract.


The Assistant Director of Neighbourhoods reiterated that one of the reasons for appointing WYG Environmental was to gain access to data from other Councils and judge whether the Council was being treated in a fair and equitable manner. The Acting Chief Executive added that the contract had been procured through a competitive dialogue process which had produced a risk sharing arrangement for recyclable materials between the Council and Biffa. Not many Councils had this sort of arrangement so this Council was achieving good value for money from this aspect of the contract, generating an income of £2.5million for the Council over the first four years of the contract.


The Acting Chief Executive counselled the Cabinet that there was still an underlying question concerning the stability of the contract, and it was necessary to resolve a number of these outstanding issues to provide a fair commercial deal and avoid such requests in the future. It was possible that a further test of the market would be recommended after the first ten years of the contract.


The Acting Chief Executive stated that the risk-reward mechanism aspect of the contract was still in place, so market changes could yet work in the Council’s favour. The changes made by the Chinese Government were trying to encourage their population to increase their recycling rate. The Assistant Director of Neighbourhoods added that the Council would benefit when the price of recycling materials rose. However, the price of recycled paper had dropped from £100 to £5 per tonne in the last twelve months, for which Biffa had taken 20% of the loss.




(1)        That the background into difficulties in exporting recycling materials to China resulting in significant capital and ongoing investments made by Biffa in their Material Recycling Facility (MRF) to improve and enhance the quality of output materials be noted;


(2)        That the making of a financial contribution be agreed in recognition of the investment made by Biffa which would improve the quality of output materials from their MRF ensuring all of the Council’s recycling materials were reprocessed and recycled and nothing was sent to landfill;


(3)        That the following be agreed for payment to Biffa in the total sum of £500,000 over the remaining six years of the contract:


            (a)        a supplementary capital estimate in the sum of £200,000 for 2018/19           be recommended to the Council for approval for the one off capital payment;


            (b)        a supplementary revenue estimate in the sum of £50,000 for 2018/19          be recommended to the Council for approval for the first of the revenue            payments; and


            (c)        revenue growth bids in the sum of £50,000 per annum for five years             starting in 2019/20 be approved for the remaining revenue payments;


(4)        That the Recycling Index Unit Rate (RIUR) of £44.66 for the period from November 2017 to November 2018 be agreed and that the consequential loss of income to the Council of £8,650 in 2018/19 be found from within the budget of the Neighbourhoods Directorate;


(5)        That the Procurement Rules be waived for the appointment of WYG Environmental Limited to assist with the contractual variation to the Waste Management contract with Biffa agreed above; and


(6)        That any opportunities for increasing income across all Council services to mitigate the risk of increased costs to the Council as a result of market fluctuation in income from recycling materials be considered by the Acting Chief Executive.


Reasons for Decision:


To consider options for dealing with Biffa’s request for financial support to ensure the stability of the Waste Management contract and guarantee end use of the recycling materials collected in the District.


Other Options Considered and Rejected:


To refuse to consider the request made by Biffa and enforce the contract. However, the risk with this approach was that if Biffa were unable to recycle all the materials collected then these would have to be sent to landfill or Biffa could, if the losses mounted, decide that they wanted to pull out of the contract and issue a termination notice.


In respect of the Recycling Index Unit Rate (RIUR) the Council had no choice as this was part of the contractual arrangement with Biffa.

Report author: Qasim Durrani

Publication date: 21/06/2018

Date of decision: 14/06/2018

Decided at meeting: 14/06/2018 - Cabinet

Effective from: 29/06/2018

Accompanying Documents: